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About the book

Description

Central banks are among the most powerful actors in today’s financial markets. This notwithstanding, for the public, there remains a certain mysterious aura around these institutions and the way they work in practice. This book aims at shedding more light at central banks and monetary policy, with a particular focus at the euro area.

Preface

Central banks are among the most powerful actors in today’s financial markets. At the same time, and despite a recent trend towards more transparency, little is known about their structures, the way they work in practice and the way they arrive at concrete decisions – there is still a mysterious aura around these institutions. This book aims at shedding more light at central banks and monetary policy, with a particular focus at the euro area.

Content

Introduction and motivation

Basic concepts

Learning objectives

Some economic concepts

Some statistical concepts

A short history of EMU

Learning objectives

The roadmap to EMU

Convergence criteria

The concept of an optimal currency area

Advantages and disadvantages of a monetary union

Some controversies about the road

Institutions

Learning objectives

The European Union

The European Central Bank

Presidents of the European Central Bank

The Rise of the Euro

A closer look at the U.S. Federal Reserve System

A closer look at the Bank of Japan

A closer look at the Bank of England

Decision-making modalities

Independence and accountability

Inflation

Learning objectives

Basic concepts

Effects of inflation

Measuring inflation

Core and non-core inflation

Measurement problems

Hyperinflation

Sacrifice ratios

Causes of inflation

Learning objectives

The Quantity Theory

The Phillips Curve

The P-Star Approach

The aggregate supply and demand model

Role and limitations of monetary policy

Empirical evidence

Monetary policy strategies

Learning objectives

Intermediate targets and indicators

Monetary policy strategies

The monetary policy strategy of the ECB

Functions of money

Financial markets

Learning objectives

Functions of the financial system

Direct and indirect finance

Financial institutions

Integration of financial markets

Interest rates

Learning objectives

Basic considerations

Present value and future value

Determinants of interest rates

Determinants of the term structure

Money markets

Learning objectives

Basic considerations

Some key interest rates worldwide

Bond markets

Learning objectives

Basic considerations

Types of bonds

Calculating the value of a bond

Bond ratings

Stock markets

Learning objectives

Basic considerations

Calculating the value of a stock

Technical and fundamental analysis

The Graham approach

Stock market indices

Equity risk premium

The concept of Beta

Foreign exchange markets

Learning objectives

Basic considerations

Purchasing power parity

Interest rate parity

Exchange market interventions

Exchange rate regimes

ERM II

Derivative markets

Learning objectives

Basic considerations

Forward and futures contracts

Swaps

Options

Credit default swaps

Market efficiency

Learning objectives

Forms of efficiency

Behavioural finance

Banks and other financial institutions

Learning objectives

Commercial banks

Other financial intermediaries

Leveraging and deleveraging

Banks runs and banking crises

Key features of the banking system in the euro area

Money supply and money demand

Learning objectives

Monetary aggregates

The money supply process

Money demand

On the control of money supply

The monetary policy transmission process

Time lags of monetary policy

Interest rate decisions of the ECB

Monetary policy instruments in the euro area

Monetary policy in times of financial crisis

Enhanced credit support

The Securities Market Programme

Three-year longer-term refinancing operations

Outright Monetary Transactions

Forward guidance

Negative deposit rates

ABS and covered bond purchase programme

Expanded asset purchase programme

TARGET2 issues

The way forward

Monetary policy in practice

Learning objectives

Real interest rates

Monetary Condition Indices

The McCallum rule

The Taylor rule

Monetary indicators

Asset price bubbles and monetary policy

Learning objectives

Asset price imbalances

Some historical examples

Debt-deflation and the Minsky moment

Detecting asset price booms and busts

Early warning indicator models

Monetary policy, asset and consumer prices

Monetary policy responses

Multiple Choice test

List of symbols and abbreviations

List of country codes

Glossary

References

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